Category Archives: oil industry

Oil Pipeline, Economics & Politics Part II: Lamu-Turkana

Yesterday, State House Kenya sent out a statement about plans for a new Kenya oil pipeline from Lokichar in Turkana to Lamu at the Kenya Coast which Total had now committed to build.

The statement comes at a time when Uganda which is believed to have larger oil fields that Kenya has committed to build an oil pipeline through Tanzania, rather than through Kenya. Also for Kenya which had planned to start oil shipments last year in a pilot project using trucks from Turkana to Mombasa, with Tullow, had that plan temporarily stall over infrastructure and political issues.

Blocks sweeten oil pipeline deal.

The Total offer will be sweetened by the provision of some oil blocks in Kenya. Total is in the processor completing an acquisition of Maersk Oil for $7.45 billion and doing the pipeline for Kenya is one way to get local approval for the deal from the local competition authority. 

Following Total SA’s commitment, the Government has consented to a proposed acquisition of the issued and to-be-issued share capital of Maersk Oil Exploration International (Mogas Kenya) in respect of Blocks 10BA, 10BB and 13T. – State House Kenya statement.
Total Kenya is listed on the Nairobi Securities Exchange and Total has been in Kenyan for over sixty years; the company’s operations include eight depots (five of which are solely owned), 2 LPG filling plants and 180 service stations.
The news comes after other oil developments including Total buying out a majority of Tullow’s oil developments in Uganda, leaving Tullow to concentrate on the oil pipeline through Tanzania.

Also see part I of Oil Pipeline, Economics & Politics.

National Oil IPO?

It has been reported that the National Oil Corporation of Kenya (NOCK) may do an IPO in 2019 with a goal of raising money to buy shares in oil blocks held by Tullow in Turkana, Northern Kenya

The most recently published annual accounts of National Oil were done by the Office of the Government’s Auditor General for the year to June 2014. Surely there are more accounts in the last three years as NOCK has gone through many changes at the board and executive level as well as in auditing requirements.

For the year to June 2014, National Oil had revenue of Kshs 23.6 billion and ended with a deficit of Kshs 657 million, down from a surplus the year before of Kshs 221 million. The audit, done by KPMG for the Auditor General, attributed the loss to the company having dead stocks worth Kshs 929 million at the Kenya Petroleum Refineries which they could not access – and this was probably at the time that the refinery management was the subject of an investment dispute between India’s Essar and the Kenya government.

National Oil had assets of Kshs 9.6 billion which included exploitation in Block 14T located in Magadi Kenya. Exploration work is being funded at Block 14T by a Japan oil & gas corporation (JOGMEC) .

National Oil is wholly owned by the Government of Kenya (99% Treasury, 1% Ministry of Energy) and received capital injection of Kshs 500 million in 2009 that had not been factored in. NOCK trades in refined petroleum, does some petroleum exploration and is mandated at the vehicle for the government of Kenya to participate in the energy sector.  It had a $12 million trade finance facility with KCB to purchase stocks and NOCK had also been contracted by the Government to construct a floating oil jetty at Mombasa.

The NOCK listing would be on the Nairobi Securities Exchange and London stock exchange. Perhaps much juicier than National Oil, would be an IPO of Kenya Pipeline which had assets of Kshs 73 billion and a profit go Kshs 10 billion in 2015.

Tullow Oil East Africa updates

A few weeks ago Tullow Oil gave an update of their half year results with operational updates for different countries including Kenya and Uganda.

  • Uganda: Tullow sold a stake in its Uganda oil development to Total Oil for $900 million ($200m cash – $100m on completion, $50m at FID, $50m at first oil, $700m in deferred consideration), and will retain 10% of that and also of a $3.5 billion pipeline through Tanzania. The statement mentions inter-governmental agreements signed to secure pipeline routing and commence key commercial agreements, and last week, Tanzania and Uganda announced the commencement of the construction of a $3.55 billion, 1,445 kilometer-long oil pipeline that will be completed in three years.
  • Ghana has sustained low-cost production due to an absence of drilling in 2017.
  • Kenya: The Implementation experience of the early Tullow early oil pilot scheme will assist the Tullow oil joint venture, Kenya Government and Turkana county to prepare for full field development (however a previous plan to transport oil by truck had been shelved before the elections amid a dispute of sharing oil revenue). 
  • South Lokichar Basin: 14 exploration prospects drilled, 11 oil accumulations discovered – estimated billion barrel basin potential.
  • Other Tullow oil exploration is ongoing in Ghana, Namibia, Zambia, and Mauritania as well as in South America.

 

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investors (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Guide to Togo and Benin

A guest post from a media gathering trip to these two French-speaking countries that lie between Ghana and Nigeria.

Getting There: Took Ethiopian Airlines – Nairobi – Addis – Lome, then by car to Cotonou and then back to Addis and Nairobi. Ethiopian flies to both countries. Initially, I had set my trip to go into and out of Lome, but changed it mid trip. The expense for the change was significant, but I assume it would have been minimal if I had done it that way up front. The round trip cost was $750 plus $350 for the change.

On arrival: Arriving in Lome was easy, but the visa on arrival (American passport) was a bit of a pain of a process and wait. There was a list of the cost for every country in the world, except America and of course mine was much more than any listed. It was 10-20,000 CFA for most countries, while the US one was 27,000. I paid in USD cash, but they had to exchange it into CFA. It’s better to pay in CFA I’m sure.

Getting around: I had private transport the whole time. In both Togo and Benin, the massive majority of people move via private motorcycle. There are many boda for hire as well. A few matatu type transportation as well and the rare taxi car for hire. The large buses were for transport to other towns and the small minivan was not seen on the highways between towns. There did not seem to be much foot traffic like you have in Nairobi. Cars and bikes were not fighting for space and everything seemed to flow smoothly.

Benin: Walking around my hotel was safe. It is next to the airport and it seemed that many of the government offices and embassy’s were around, so the security was higher. Many of my local friends have been pick pocketed on the streets, but violence doesn’t seem to be as common as in Nairobi.

Togo seemed very safe overall. The crowds were smaller. A slower pace of life.

Staying in touch: It was very easy to get a local SIM card, much like in Kenya. Costs were very comparable. I forget the network in Togo, but I’m using MTN in Benin. I don’t recall if I could use Safaricom, I didn’t even try. I have not tried calling international on either network. Wi-Fi seems to be common, but the speeds vary a lot and the network is down often. I suspect it’s a problem with the ISP more than the local network. In Togo, my colleague’s wife happens to work at the office of the mobile company. I provided my passport and she gave me a SIM card. In Benin, a friend purchased the card for me, but I suspect it only required a copy of ID to obtain.
Where to Stay: I think the median cost is $60. I started at a place that cost $25 without breakfast that was a rat hole. I moved to a western level of accommodation for $80 with breakfast. All the hotels I stayed in, no matter how nice, always had AC & Wi-Fi.

Electricity was surprisingly good. I honestly don’t recall a single power cut, but I’m sure they happened. Most of the hostels had a generator.

Eating Out: Foo Foo is a staple somewhat similar to ugali. It’s wet and slimy and has more flavour to it, but fermented, like Ethiopian injera. Some forms have a lot more flavour than others with cassava being a common ingredient. No clue on the beer, but easy to get everywhere, as is French wine, even upcountry.

No clue with bar conversation is – it’s also all in French. French is a must. I had a variety of hosts with me the whole time. The only English I found was the little spoken by the staff in the hotel. I very much doubt there is a local English paper.

Shopping: in Benin, there is a very small market in front of a very nice supermarket next to the airport. It seems the majority of gifts are cloth based. I did see some very unique, artistic metal work. Of course, there is also the standard wooden animals. I was told there is another market, but I was not able to attend.

In Togo: I was taken to a small market with maybe a dozen stalls with a wide variety of items. For the most part, pretty similar to what you find in Kenya. There was one guy selling silver jewelry, like what you find in Ethiopia.

Sightseeing: In Togo,  there is the main museum next to their national monument, but I didn’t have time to visit. The beach is incredible, but only locals use it. There doesn’t seem to be any structured area for tourism.

In Benin, the interior mountains are incredible sites to see, massive slabs of granite, there is a very famous sighting of Mary in Dassa. A very large church has been built there and every year massive numbers of West African Catholics come for a special service and ceremony. The church is only used for this event. I’m told that the town comes to a standstill. The church could probably hold over 10,000 people and I was told the grounds outside are completely covered in standing room only. I imagine over 25,000 people attend.

Card usage is extremely rare, even for nice restaurants. Food costs vary from $1 (roadside) to $20 (nicest restaurant) for a meal. CFA is used in both Togo & Benin everywhere.  I used an ATM everywhere. They were found all over town. I used CFA for everything.

Odd Points: Partial buildings: West Africa’s way of saving money is to build their homes and churches over many years as money comes. Sadly, I have seen in rural Burkina Faso many, many ruined homes never finished. What a waste. But, from what I saw in Togo and Benin, most everything is eventually finished.

My hosts were rarely forthcoming with information and did not seem like problem solvers. I was constantly having to suggest solutions and pointing out gaps. I am not sure if I was missing culture cues or perhaps a lot was happening in the language that I was not picking up on. I appreciated that the roads seemed significantly safer.
Biggest surprise:  The road structure. There are beautiful, nice main roads, and then dirt. Nothing in between. This seemed mostly true in both countries. Many roads in both countries were not paved but made from interlacing bricks. Black market fuel seems to be very big in both countries. It’s not as obvious in Togo, but it’s done very openly all over Cotonou, and it’s half the price compared to the pump.